UPS and Fedex Case Study Essay

Tags: business cash flow china competitive advantage fedex investment stock united parcel service

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1. What happened to the two company’s stock price in 2004? Why did it rise? Did one company outpace another and if so why do you think that happened? How should we interpret any increases?



Mid-year 2004, China and the United States attained a revolutionary air-transportation covenant that increased the number of commercial cargo trips between the two nations four-fold. In addition, the agreement encompassed the permission for air-cargo hubs to be created in China and also sanctioned the right for commercial airlines to land at any accessible airport. Taking into consideration that United Parcel Service, Inc, together with FedEx Corporation were the sole all-cargo carriers at the time, it implied that they could expand their operations to the Chinese market. This major market prospect led to an increase in the stock price for the companies. However, it is imperative to note that one company did outperform another. In particular, the share price of FedEx increased at a rate of just about five time quicker as compared to UPS.



The main reason why FedEx has a better performance and therefore greater increase in share price is because it had a competitive advantage over UPS. To begin with, the corporation had the biggest international presence in China as compared to UPS. Having a bigger market share implied that it could increase its operations and therefore increase the revenues and profits generated. Notably, FedEx was able to have 11 flights transport cargo to China on a weekly basis, a number that was double the number of flights operated by UPS. It is also important to point out that FedEx was able to provide its carrier services to 220 cities in China and had direct flight to major cities, for instance Shanghai, Beijing, and Shenzhen. In the one financial year between 2003 and 2004, FedEx experienced a significant growth with its volumes in China increasing by more than 50 percent.

Any increases should be interpreted as growth and development in the market and also gaining competitive advantage over industry rivals. For instance, the significant increase in stock performance for FedEx Corporation as compared to that of UPS not only implied major growth in the overseas market and having a competitive advantage, but also meant that it generated greater revenues and profits compared to its main market competitor.



2. Why didn’t UPS create an overnight delivery service and how did Fedex successfully enter this market?



The main reason why UPS did not generate a service for overnight delivery is because the company is conservative from a financial standpoint and focuses of diminishing its costs. Notably, overnight delivery services lead to an increase in the costs incurred by the company, an aspect that contradicts the mission of UPS. In contrast, FedEx managed to successfully pull off entering the market. This is largely for the reason that the company made major investments in a fleet of aircrafts prior to market entry. In addition, when UPS entered the market later on, establishing such overnight delivery services was substantially costly.

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3. What’s going on in the industry? How do those things potentially impact Fedex and/or UPS? How do they impact how Fedex and/or UPS will behave in the future? How are the two firms competing?



Some of the key things going on in the industry is the advancement of e-commerce together with home delivery for consumers. In the contemporary, progressively more consumers have a preference for shopping at the comfort of their homes and having the products delivered to their homes in an expedient manner. In accordance to Derousseau (2017), online shopping has impact the profit margins for the company and obligated them to begin an overhaul of their supply chains. For delivery companies such as UPS and FedEx, the shortcoming of the boom and thriving in e-commerce is that product deliveries to consumer homes are comparatively unprofitable. This is because they encompass solely one or two commodities different from the ability of shipping products in bulk and decreasing the cost per delivery.



These industry trends are influencing both UPS and FedEx are expected to continue impacting them in the future periods. Imperatively, UPS has been adversely affected. This is owing to the reason that its ground business operation, which encompasses residential drop-offs, deals with 40 percent more deliveries everyday as compared to FedEx. This has led to the company’s stock to grow slowly compared to FedEx over the past five years, with e-commerce significantly impacting its profits negatively. In addition, these advancements are significantly bound to impact both FedEx and UPS with the rise of Amazon in the market. This is for the reason that in recent periods Amazon has been able to test its own delivery service packages to be able to decrease the backlogs in its warehouses (Derousseau, 2017).



The two companies are competing for domination in the courier services. On one hand, FedEx express is facilitating the company to have a competitive advantage owing to guaranteed next day deliveries and also global services that are well-timed at cheaper prices. On the other hand, UPS rivals FedEx in the market by offering two kinds of time-definite delivery services. The domestic services rendered in the United States consist of time-definite delivery of packages whereas the global services rendered includes delivery to more than 220 nations across the globe. In addition, UPS offers services for Freight and Supply Chains, including designing of supply chains, implementation and management as well as distribution.



4. How have the two companies performed financially? How do you measure financial performance and why? What do the statements and ratios tell you? What does the stock price tell you? How is EVA calculated and what information can you derive from it? Does EVA move in the same direction and to the same degree as does the stock price?



Financial performance measurement is an important aspect of ascertaining how efficaciously a business is run and also its financial health.….....

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References

Derousseau, R. (2017). Can UPS and FedEx Deliver for Investors? Fortune. Retrieved from: http://fortune.com/2017/10/26/ups-stock-fedex-stock-ecommerce/

Investopedia. (n.d.). Economic Value Added – EVA. Retrieved from: https://www.investopedia.com/terms/e/eva.asp

Rao, P. M. (2011). Financial Statement Analysis and Reporting. Eastern Economic Edition, PHI Learning Private Limited, New Delhi.

Stewart, B. (2013). Best-practice EVA: The definitive guide to measuring and maximizing shareholder value. Hoboken: John Wiley & Sons.

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